A dissertation submitted to ING Vysya Bank, Punjabi Bagh Branch, New Delhi towards fulfillment of Summer Internship

A Report on

SMEs Lending in Private Sector Bank

MAY11-JULY11

Under the guidance of

Mr. ASEEM ANAND Mr. SUMIT KHARI Mr. DEEPAK GUPTA Mr. ABHISHEK ASHISH

Submitted By
GAURAV ARORA PGP 20102112

IILM INSTITUTE FOR HIGHER EDUCATION DLF , GOLF COURSE, GURGAON SEC- 55

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ACKNOWLEDGEMENT
I would like to express my deep gratitude to the people involved in the successful completion of an endeavour which is always a result of people involved explicitly therein and it is impossible without the help and guidance of the people around. At the outset, I wish to express my sincere thanks to almighty for showering his blessing on me to develop this project. I express my sincere thanks to MR. ASEEM ANAND, BRANCH HEAD for giving permission to carry out this study in his esteemed organization. I would like to acknowledge my sincere thanks to MR. SUMIT KHARI for his excellent guidance and supervision for the completion of this project successfully. I am extremely thankful to MR DEEPAK GUPTA, RM, Punjabi Bagh Branch, New Delhi for his expert guidance, cooperation and help. I wish to express my sincere regards to MR. ABHISHEK ASHISH (BOSH), for his help, valuable guidance and kind supervision, which was the main stream to accomplish this study.

Last but not the least I wish to thank my parents who always believed me and have faith in me in whatever I wished to do.

GAURAV ARORA PGP20102012

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CONTENT

S.No. 1. 2. I II III IV (a) (b) V 3. 4. I II III 5. I II (a) (b) 6. 7. 8.

Content About ING Vysya Background Micro, Small and Medium Enterprises Business Loan Business Banking at ING Vysya SME lending at ING Vysya Code of Banks Commitment to Micro and Small Enterprises Products for SMEs at ING Vsysa Credit Management Objective of my internship Methodology Followed STAGE 1: Drawing Power STAGE 2: Monitoring STAGE 3: Credit Appraisal Abstract of cases done during internship Drawing Power Calculation Credit Appraisal Case 1: ABC Agency Case 2: XYZ Chemicals Result & Discussion Summary References

Page No. 4 9 10 16 21 23 23 24 30 50 51 52 52 52 54 55 56 56 69 87 88 89

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ABOUT ING VYSYA

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ING Vysya Bank Ltd., is an entity formed with the coming together of erstwhile, Vysya Bank Ltd, a premier bank in the Indian Private Sector and a global financial powerhouse, ING of Dutch origin, during Oct 2002. The origin of the erstwhile Vysya Bank was pretty humble. It was in the year 1930 that a team of visionaries came together to form a bank that would extend a helping hand to those who weren't privileged enough to enjoy banking services. It's been a long journey since then and the Bank has grown in size and stature to encompass every area of present-day banking activity and has carved a distinct identity of being India's Premier Private Sector Bank. In 1980, the Bank completed fifty years of service to the nation and post 1985; the Bank made rapid strides to reach the coveted position of being the number one private sector bank. In 1990, the bank completed its Diamond Jubilee year. At the Diamond Jubilee Celebrations, the then Finance Minister Prof. Madhu Dandavate, had termed the performance of the bank Stupendous. The 75th anniversary, the Platinum Jubilee of the bank was celebrated during 2005. The long journey of seventy-five years has had several milestones 1930 1948 1985 1987 1988 1990 1992 1993 1996 1998 Set up in Bangalore Scheduled Bank Largest Private Sector Bank The Vysya Bank Leasing Ltd. Commenced Pioneered the concept of Co branding of Credit Cards Promoted Vysya Bank Housing Finance Ltd. Deposits cross Rs.1000 crores Number of Branches crossed 300 Signs Strategic Alliance with BBL., Belgium. Two National Awards by Gem & Jewellery Export Promotion Council for excellent performance in Export Promotion Cash Management Services, & commissioning of VSAT. Golden Peacock Award - for the best HR Practices by Institute of Directors. Rated as Best Domestic Bank in India by Global Finance (International Financial Journal - June 1998)
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2000 2001

State

-of

the

-art

Date

Centre

at

ITPL,

Bangalore.

RBI clears setting up of ING Vysya Life Insurance Company ING-Vysya commenced life insurance business. The Bank launched a range of products & services like the Vys Vyapar Plus, the range of loan schemes for traders, ATM services, Smartserv,

2002

personal assistant service, Save & Secure, an account that provides accident hospitalization and insurance cover, Sambandh, the International Debit Card and the mi-b@nk net banking service.

2002 2002 2003 2004 2005 2006

ING takes over the Management of the Bank from October 7th , 2002 RBI clears the new name of the Bank as ING Vysya Bank Ltd, vide their letter of 17.12.02 Introduced customer friendly products like Orange Savings, Orange Current and Protected Home Loans Introduced Protected Home Loans - a housing loan product Introduced Solo - My Own Account for youth and Customer Service Line Phone Banking Service Bank has networked all the branches to facilitate AAA transactions i.e.

Anywhere, Anytime & Anyhow Banking In terms of pure numbers, the performance over the decades can better be appreciated from the following table: Rs. in millions
Year Networth 1940 1950 1960 1970 1980 1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0.001 1.40 1.60 3.00 11.50 162.10 5900.00 6527.00 6863.24 7067.90 7473.20 7094.00 10196.70 11101.90 14260.00 15940.00 2223.00 Deposits 0.400 5.30 20.10 91.50 1414.30 8509.40 74240.00 81411.10 80680.00 91870.00 104780.00 125693.10 133352.50 154185.70 204980.00 248900.00 258650.00 Advances 0.400 3.80 13.50 62.80 813.70 4584.80 39380.00 43163.10 44180.00 56120.00 69367.30 90805.90 102315.20 119761.70 146500.00 167510.00 185070.00 Profits 0.001 0.09 0.13 0.74 1.13 50.35 443.10 371.90 687.50 863.50 590.01 (381.80) 90.6 889.0 1569.00 1888.00 2422.00 Outlets 4 16 19 39 228 319 481 484 483 456 523 536 562 626 677 857 866*

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*Outlets comprises of 468 branches, 13 ECs, 28 Satellite Offices and 357 ATMs as of March 31st 2010. Additionally the bank also has Internet Banking, Mobile Banking and Customer Service Line for Phone Banking Service. The origin of ING Group On the other hand, ING group originated in 1990 from the merger between Nationale Nederlanden NV the largest Dutch Insurance Company and NMB Post Bank Groep NV. Combining roots and ambitions, the newly formed company called Internationale Nederlanden Group. Market circles soon abbreviated the name to I-N-G. The company followed suit by changing the statutory name to ING Group N.V. Profile ING has gained recognition for its integrated approach of banking, insurance and asset management. Furthermore, the company differentiates itself from other financial service providers by successfully establishing life insurance companies in countries with emerging economies, such as Korea, Taiwan, Hungary, Poland, Mexico and Chile. Another specialisation is ING Direct, an Internet and direct marketing concept with which ING is rapidly winning retail market share in mature markets. Finally, ING distinguishes itself internationally as a provider of employee benefits, i.e. arrangements of nonwage benefits, such as pension plans for companies and their employees. Mission ING`s mission is to be a leading, global, client-focused, innovative and low-cost provider of financial services through the distribution channels of the clients preference in markets where ING can create value . The new identity The immediate benefit to the bank, ING Vysya Bank, has been the pride of having become a Member of the global financial giant ING. As at the end of the year December 2010, ING's total assets exceeded Rs. 87290 billion, with a underlying net profit of Rs. 272510 million, employed around 105000 people, serves over 85 million customers, across 40 countries. This global identity coupled with the backup of a financial power house and the status of being the first Indian International Bank, would also help to enhance productivity, profitability, to result in improved performance of the bank, for the benefit of all the stake holders.

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BACKGROUND

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Micro, Small and Medium Enterprises

Micro, small and medium enterprises (MSME) sector has been recognised as an engine of growth all over the world. The sector is characterised by low investment requirement, operational flexibility, location wise mobility, and import substitution. In India, the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is the first single comprehensive legislation covering all the three segments. In accordance with the Act, these enterprises are classified in two:- (i) manufacturing enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951. These are defined in terms of investment in plant and machinery; (ii) service enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. Both categories of enterprises have been further classified into micro, small, medium and large enterprises based on their investment in plant and machinery (for manufacturing enterprises) or on equipments (in case of enterprises providing or rendering services). The present ceiling on investment to be classified as micro, small or medium enterprises is as under:

Manufacturing Sector Enterprises Micro Enterprises Small Enterprises Investment in plant & machinery Does not exceed twenty five lakh rupees More than twenty five lakh rupees but does not exceed five crore rupees Medium Enterprises More than five crore rupees but does not exceed ten crore rupees

Service Sector Enterprises Investment in equipments

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Micro Enterprises Small Enterprises Medium Enterprises

Does not exceed ten lakh rupees More than ten lakh rupees but does not exceed two crore rupees More than two crore rupees but does not exceed five core rupees

Profile of Indian MSME Sector S.No. 1 2 3 4 5 Particular Number of micro and small enterprises Employment Share in GDP Share in manufacturing output Share in exports Value 140 Lakhs 600 Lakhs 8-9% 45% 40%

Small and Medium Enterprises (SMEs) sector in India is definitely growing at an exceptional rate. Still, there are some important things that need to be focused upon so that best out of these enterprises can be obtained. Here is a brief analysis of the Indian SME sector.

Some Figures of Interest

The Indian SME market is worth $5 billion. There are around 14 million SME units in India that produce more than 8,000 products.
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Nearly 90 percent of the Indian industrial units belong to the sector of small and medium enterprises. The SMEs contribute 40 percent to the overall industrial output of the country. The sector accounts for about 39% of the manufacturing output and around 40% of the total export of the country. The major advantage of the sector is its employment potential at low capital cost.

As per available statistics, this sector employs an estimated 60 million persons and the labour intensity in the MSE sector is estimated to be almost 4 times higher than the large enterprises.

It is source of innovative products. This sector creates 1.3 million jobs per annum. Finally, these enterprises are estimated to grow at the rate of 20 percent per year

for upcoming years. In recent years the MSE sector has consistently registered higher growth rate compared to the overall industrial sector. Main Reasons for SME Growth

Foreign and local fund providers are taking huge interest in the small and medium enterprises of India. Banking sector has also shown a keen interest in lending credit to these enterprises. Many recent mergers have taken place in the sector. The sector has significantly contributed towards the domestic production as well as the export earnings. Low investment is required to start and maintain these enterprises. The sector has contributed impressively towards job creation and increase in individual incomes.

Technological growth is also a factor for growth of SME's in India as there are several trade portals and business directories available online with huge database of buyers, sellers, manufacturers who are basically back bone of SME's.

The SMEs are dominant players in some of Indias major export sectors namely Textiles and Garments, Leather products, Sports goods, Gems and jewellery, Handicrafts among others. They also contribute substantially in industrial goods segments in sectors such as electrical, engineering, rubber and plastics.

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Opportunities for SMEs in INDIA With their inherent strength and resilience SMEs can weather adverse situations like global financial crisis and economic slowdown, as they are not dependent on public money. Many overseas companies are approaching Indian SME to out source their manufacturing activities. In service sector too, many are setting up BPO and KPO in India, which are a real boon for the Indian SME sector. Unless and until the SMEs equip themselves with the latest technologies, processes and machinery, they will not be in a position to meet the stringent quality standards set out by the buyers. Even if they are exploring new markets, the products and services have to be suitably modified to meet the market requirements with innovative designs and features. It is an excellent opportunity for the Indian SMEs to convert the present global melt down condition to their advantage by catering to the needs of the markets, which are already reeling under the recession. Challenges Ahead Even after recording an impressive growth in the recent years, the small and medium enterprises of India face many challenges:

Infrastructure needs to be developed for setting up the SMEs in the rural sector of the country. Transportation, electricity and communication are the main parts of the infrastructure required.

Technology need to be evolved so that quality products are manufactured by the sector. Lack of information about the inputs, including raw material, machinery and skills, is one critical challenge in front of the owners of these enterprises. High level of research and development is required.

Administrative framework for MSMEs The Government has been encouraging and supporting the SME sector through policies for infrastructural support, technology up gradation, preferential access to credit, reservation of products for exclusive manufacture in the sector, preferential purchase policy, etc. It has been offering packages of schemes and incentives through its specialized institutions in the form of assistance in obtaining finance; help in marketing; technical guidance; training and technology up gradation, etc.
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Government of India has set up a new governing body for promotion and development of Micro, Medium and Small Scale Enterprises via MSME Development Act, which came into force from 2nd October 2006. The President under Notification dated 9th May 2007 amended the Government of India (Allocation of Business) Rules, 1961 by which, Ministry of Agro and Rural Industries (Krishi Evam Gramin Udyog Mantralaya) and Ministry of Small Scale Industries (Laghu Udyog Mantralaya) have been merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises. The Ministry of Micro, Small and Medium Enterprises (MSME) is the administrative Ministry in the Government of India for all matters relating to Micro, Small and Medium Enterprises. It designs and implements policies and programmes through its field organizations and attached offices for promotion and growth of MSME sector. The Office of the Development Commissioner (MSME) is an attached office of the Ministry of MSME, and is the apex body to advise, coordinate and formulate policies and programmes for the development and promotion of the MSME Sector. The office also maintains liaison with Central Ministries and other Central/State Government agencies/organizations financial institutions. In view of the Government of Indias ambitious target of average GDP growth rate of 9% during the 11th Five Year Plan, SMEs is playing a vital role in achieving this target. It is imperative for the government to address the major issues plaguing the sector and take further inclusive growth oriented policy initiatives to boost the sector. This includes measures addressing concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and marketing among others. As mentioned earlier, SMEs constitute 40% of Indias merchandise exports and in order to increase Indias export share to the global trade, SMEs are expected to enlarge their scope manifold.

Business Loan
Assets of banks consist mainly of loans to businesses and consumers and their liabilities comprise of various forms of deposits from consumers. Their main source of income is from what is called as the interest rate spread, which is the difference between the lending rate (rate at which banks earn) and the deposit rate (rate at which banks pay). Banks generally do not lend 100% of their deposits. They are statutorily required to maintain a certain portion of the deposits
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as cash and another portion in the form of liquid and safe assets (generally Government securities), which yield a lower rate of return. These requirements, known as the Cash Reserve Ratio (CRR ratio) and Statutory Liquidity Ratio (SLR ratio) in India, are stipulated by the Reserve Bank of India and banks need to adhere to them. Bank gives loan to companies to meet their working capital requirement or as guarantee. Working Capital refers to that part of the firms capital, which is required for financing short term or current assets such as cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital. FACTORS DETERMINING WORKING CAPITAL _ Nature of the Industry _ Demand of Industry _ Cash requirements _ Nature of the Business _ Production Cycle _ Credit control _ Inflation or Price level changes Profit planning and control _ Manufacturing time _ Volume of Sales _ Attitude towards Risk _ _ Terms of Purchase and Sales _ Inventory Turnover _ Business Turnover _ Business Cycle _ Current Assets requirements _ Repayment ability _ Cash reserves _ Operation efficiency _ Change in Technology _Firms finance and dividend policy

SOURCES OF WORKING CAPITAL Sources of working capital are: _ Owned fund (Equity, Reserves, etc.) _ Bank borrowings (Cash Credit, Packing Credit, B/D, L/C) Sources of additional working capital include the following: _ Existing cash reserves _ Profits
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_ Payables (credit from suppliers) _ New equity or loans from shareholders _ Bank overdrafts or lines of credit Long-term loans To help companies in meeting their requirements, banks provide fund based and non fund based loans to the companies depending upon the requirement. Fund Based Non-fund based facilities are such facilities extended by banks which involve outgo of funds from the bank when the customer avails the facilities.

Cash credit/Overdraft facility Cash credit/overdraft is a form of credit facility in which a borrower is sanctioned a pre - arranged limit with the freedom to borrow as much money as he requires. In case of flow of credit to the account, he can withdraw afresh subject to the limit sanctioned. As such, the limit works as a revolving line of credit. Bank charges interest on the outstanding balances. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money. As security is always taken from the client against overdraft limit, it is a secured limit and thus it is also called Secured Overdraft facility (SOD). Cash Credit (CC) is same as Overdraft facility, Only difference between cash credit and over draft is that in cash credit both stock and debt are considered while in overdraft facility only debt is considered. Thus, client has to send monthly stock statements and list of debtors to the bank from with monthly drawing power is calculated.

Bill Discounting Bill discounting is a major activity with some of the smaller Banks. In case of discounting of a bill, a bank buys the bill (i.e. Bill of Exchange or Promissory Note) before it is due and credits the value of the bill after discount charges to
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the customers account. The transaction is practically an advance against the security of the bill and the discount represents the interest on the advance from the date of purchase of the bill until it is due for payment. Only usance bills are discounted. Under this particular type of lending, Bank takes the bill drawn by borrower on his(borrower's) customer and pay him or her immediately deducting some amount as discount/commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collects the total amount. If the bill is delayed, the borrower or his customer pays the Bank a predetermined interest depending upon the terms of transaction. Term Loan Term Loans are the counter parts of Fixed Deposits in the Bank. Banks lend money in this mode when the repayment is sought to be made in fixed, predetermined installments. This type of loan is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period (exceeding at least one year). Purchases of plant and machinery, constructing building for factory, setting up new projects fall in this category. Financing for purchase of automobiles, consumer durables, real estate and creation of infra structure also falls in this category. Pre shipment Credit Pre-shipment Credit is offered to an exporter by way of packing credit to enable him to finance purchase/import of raw materials, processing and packing of the goods meant for exports. Import can be on DA (Payment against acceptance) or DP (payment against receipt of document) basis. DP means documents against payment (a sight payment) . In this case the documents are sent to the buyers bank who holds the documents until payment is receieved by that bank. Once payment is received, the bank releases the documents to the buyer.

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DA means documents against acceptance. This is NOT a banker's acceptance and it is NOT a deferred payment undertaking by the bank. In this case, the documents are sent to the buyers bank who releases only the draft to be accepted by the buyer. Once the draft is accepted with a stated maturity date and returned to the buyers bank, the bank will release the documents to the buyer. The buyer has the obligation to make payment at maturity, but if they do not pay, the bank will NOT make payment to the seller. Post shipment Credit Post-shipment Credit is offered to an exporter to finance export sales receivables after the date of shipment of goods till the date of realisation of export proceeds. Like pre shipment, payment for post shipment can also be on DA or DP basis. Non-Fund based Non-fund based facilities are such facilities extended by banks which do not involve outgo of funds from the bank when the customer avails the facilities but may at a later date crystallise into financial liability if the customer fails to honour the commitment made by availing these facilities. Letter of credit A Letter of Credit (LC) is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. LC are of two types- usance and sight. The main difference between the two is that in Sight LC where the purchaser is not provided any credit period while in Usance LC credit period is provided by the seller to make payment for the goods. Thus in Sight LC the bank send the LC first and then the goods arrive whose papers remain with the bank till the time the buyer make payment to the bank and signs these papers. On the sellers side, the LC will be payable only once the goods are under the possession of bank and on buyers side goods can be received only after the payment is done to the bank. In case of Usance LC, goods are first dispatched and then the client is given a credit

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period in which he has to make the payment to the seller. If the client does not make payment in the given credit period, bank send the LC to the seller.

LC can be used for buying material from its own country or from foreign country. If the goods are bought from its own country, in our case from India, it is called Inland Letter of Credit (ILC). If the goods are bought from a foreign country i.e. imported, it is called Foreign Letter of Credit (FLC). Bank Guarantee Bank Guarantee (BG) is a guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it.

A bank guarantee and a letter of credit are similar in many ways but they're two different things. Letters of credit ensure that a transaction proceeds as planned, while bank guarantees reduce the loss if the transaction doesn't go as planned. A letter of credit is an obligation taken on by a bank to make a payment once certain criteria are met. Once these terms are completed and confirmed, the bank will transfer the funds. This ensures the payment will be made as long as the services are performed. A bank guarantee, like a line of credit, guarantees a sum of money to a beneficiary. Unlike a line of credit, the sum is only paid if the opposing party does not fulfil the stipulated obligations under the contract. This can be used to essentially insure a buyer or seller from loss or damage due to non performance by the other party in a contract.

LEF (Loan Equivalent Factor) For commercial loans, when granting a revolving line of credit, a bank usually provides a credit limit. A borrower obtains an immediate loan amount and the future availability of the total loan amount. Accordingly, the corresponding exposure for the bank has two parts: the outstanding balance (NB) and the current commitment (NE). The outstanding balance refers to the amount
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drawn by the obligor, while the current commitment includes drawn and undrawn portions that the bank has promised to lend to the borrower at his or her request. The probability of drawing the undrawn portion in the next 12 months is defined as the loan equivalency factor (LEF) off balance sheet. Since a probability always has values from 0 to 1, LEF is constrained into a range of 0 to 1.

Buyers Credit Raw Material

Raw Material Guarantee (an import credit guarantee) may foreign borrower in

be issued as security for a loan granted to a fo

connection with a long-term contract with an Indian buyer concerning import of raw materials (for example, concentrates for the basic metals industry).

While giving loans bank does the analysis of various parameters to check the risk associated with the repayment of loan. One of the major parameter is financial analysis where key ratios are analysed. In general the levels and risk associated with these key ratios are: Particulars Current Ratio Formula Current Assets Current Liability TOL/TNW Total Outstanding Liabilities Interest Coverage Total Net Worth EBITDA Interest & other
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Low Risk >1.40

Medium Risk 1.20-1.40

High Risk <1.20

<2.00

2.00-3.50

<3.50

>3.50

2.00-3.50

<2.00

PAT/Sales % Inventory (N o. Of days) Debtors (No. of days)

finance charge (PAT/Sales)*100 Ending Inventory Cost of Goods Sold / 365 Average Gross Receivables Annual Net Sales / 365

>10.00 <60

4.00-10.00 60-90

<4.00 >90

<45

45-90

>90

Debt-Equity Ratio DSCR ( For TL)

Total Debt Total Equity EBITDA Interest+Current maturities in long term debt

<1.25 >2.00

1.25-1.75 1.25-2.00

>1.75 <1.25

Business Banking at ING

Business Banking at ING Vyasya, Punjabi Bagh deals with SMEs lending. The SMEs lending has following four subparts:

Sales and marketing Every bank want to have clients with good past record

and proper business planning. Thus it is very important to market the facilities available at the bank and convince good clients to take them. Giving right facility to the clients depending on their requirement comes under sales. Proper execution of these two steps insures long term relationship with the clients and helps to develop relationship with new and better clients.

Credit Appraisal Once the overall information about the client is got, we

make a proposal based on the requirement of the client and purpose for which he needs debt. There are various types of fund based and non fund based facilities available depending on the requirement of the clients. Depending on the requirement of the client various parameters are analysed to know the credit worthiness of the client. Deviation in the guidelines setup by the IVBL, RBI and other government institution is checked for the firm and promoters. Financial data for past years and
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projections for next years, balance sheet and income statement, are analysed to know the financial strength of the firm. This is important as it insures that all the facilities will be repaid on time. Apart from this credit rating is also done by the bank to know the risk associated with the client.

Monitoring After the account has been created with IVBL and disbursement

of loan has been done, monthly monitoring is of the account is important to know that facility diven to the client is properly utilised. Under monitoring we monthly check the churning in the account, inward check returns, outward check return, stocks, debtors, creditors and average utilization of the facility given. This helps to see whether the account bearer is doing business in accordance with the reports given by it. Apart from this quarterly visits are also made to the godowns and factories to make sure everything is same as required and reported. Bank remains in contact with the clients promoters to see if there is any major change in the business structure taking place which could go against the post disbursement conditions and other banks norms. This part helps to prevent any fraud or loss to the bank because of default.

Collection Sometimes the clients is unable to repay the loan amount to the

bank due to various reasons. In this case, reason for default has to be checked and then legal proceedings are made accordingly to get the loan amount from the client. To avoid any major loss in such cases bank always take papers of primary cover and collaterals before disbursement of the facility is done. If such situation arises, legal help is required to collect the money from the client.

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SME lending at ING Vyasya

Code of Bank's Commitment to Micro and Small Enterprises
This is a voluntary Code, which sets minimum standards of banking practices for banks to follow when they are dealing with Micro and Small Enterprises (MSEs ) as defined in the Micro Small and Medium Enterprises Development (MSMED) Act, 2006. It provides protection to MSEs and explains how banks are expected to deal with them for their day to -day operations and in times of financial difficulty. The Code does not replace or supersede regulatory or supervisory instructions issued by the Reserve Bank of India (RBI) and we will comply with such instructions /directions issued by the RBI from time to time. The provisions of the Code may set higher standards than what is indicated in the regulatory or supervisory instructions and such higher standards will prevail, as the Code represents best practices agreed by IVBL as their commitment to MSMEs. Objectives of the Code The Code has been developed to a. Give a positive thrust to the MSE sector by providing easy access to efficient banking services. b. Promote good and fair banking practices by setting minimum standards in dealing with MSEs. Increase transparency so that they can have a better understanding of what they can reasonably expect of the services. d. Improve IVBL understanding of MSEs business through effective communication. e. Encourage market forces, through competition, to achieve higher operating standards. f. Promote a fair and cordial relationship between MSEs and IVBL and also ensure timely and quick response to MSEs banking needs. g. Foster confidence in the banking system.

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Products for SMEs at ING Vyasya

At ING Vysya, following types of products are offered under Business Banking:

MPower Rent
Product Definition A product that offers immediate liquidity against commercial property owned. Avail of a loan at competitive rates, against rent receivables.

Key Features The loan is self - liquidating in nature and offers immediate liquidity to the property owners. The Product envisages grant of Term Loans to the Lessors of the property by discounting/scrutinizing the lease rentals receivable from the lessees of the property. Target Customers Individuals Proprietary Concerns Partnership Firms Public & Private Limited Companies Trusts & Registered Bodies like Educational Institutions, Association of persons etc., owning Commercial Properties Eligibility Criteria
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Borrower Credit Investigation Report. Details like background of promoters, activities of group companies, their financial status. IT/ Wealth Tax Returns, Assets & Liability statements of individuals & promoters. Financial statements of the Lessor firm/ Company/ Institution/ Association of Persons.

B. Tenant (Lessee) Well known Multinational Companies (MNC), Public Sector Undertakings (PSU), Private Sector Companies including their subsidiaries, Banks, All India Financial Institutions, National & International Airlines, Insurance Companies, Central Government Offices. In such cases, the financial statements need not be insisted upon. Other Companies / Institutions / Firms which are in existence for a period of at least 3 years and are earning Cash Profits for a minimum period of 2 years. New companies promoted by High Net Worth Individuals. C. Property Commercial properties located in Metros and Urban areas with an unencumbered, clear and marketable title. Property should be suitably located for easy marketability. Value of the commercial property should be at least 125 to 150 % of the Loan Amount. D. Lease Agreement Normally the unexpired lease period should not be less than the period of loan, and terms of lease agreement should prohibit the Lessee from vacating the premises before expiry of lease agreement without paying rent for the full period, discounted at the rate not higher than the rate applied by the Bank on the loan.
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In case the lease agreement is for a period less than the loan period, and the lessee is not bound to renew the lease, or he has option to vacate the premises after giving notice, it must be ensured that: -The lessee has a greater financial disincentive not to renew the Lease at least for the remaining period of the loan, or -The lessor signs an agreement with the Bank, that, in the event the present Lessee vacates the property and the lessor is unable to find new tenant within a period of 1 month, the Bank will have the right, but will be under no obligation to select a new lessee. The lessor will be bound to sign the agreement with the new lessee.

MPower Business Loans Trade

Product Definition A scheme formulated specifically to provide credit facilities to Small and Medium Enterprise engaged in Trading, Small Businesses and Service activities. The scheme offers Secured Overdraft Limits (SOD) (Fund and Non-fund) Term Loans and Composite Loans covering both Working Capital as well as Term loan with a maximum exposure of Rs.200 lakhs per customer. Key Features Granting of Secured Overdraft Limits (SOD) (Fund and Non-fund) Term Loans and Composite Loans covering both Working Capital as well as Term loan with a maximum exposure of Rs.200.00 0 lakhs per customer. Bank Guarantees, LCs and Solvency Certificates can be issued.

Target Customers Retail Traders and Small Business.

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 Professionals including Practicing Doctors / Advocates / Consultancy Units / Travel Agencies/Advertising and Publicity agencies etc. Wholesale Distributors & Dealers / Stockists, Commission Agents. Jeweler Shops, Nursing Homes. Contractors. Transport Operators (only for working capital) Other thriving commercial activities characterized by major share of cash transactions. Eligible borrowers are: Individuals Self Employed Persons, Women Entrepreneurs, Agri-

businessmen, etc. Proprietorship concerns / Partnership concerns. HUF, Limited Companies. Borrowers should necessarily consider ING Vysya Bank as their Sole Bankers.

Eligibility Criteria Past track record of the entrepreneur in the business. Overall financial standing of the business enterprise. Market reputation and integrity of the borrower. Acceptable level of trade activity. Credit needs for stock-in-trade and credit sales. Risk coverage by way of the adequate securities offered for the proposed credit exposure.

MPower VIDYALAYA
Product Definition

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A customized package for financing to Educational Institutions by capitalizing on the lending opportunities arising out of the privatization of the Educational Sector. Key Features Term loan for construction of Buildings to accommodate classrooms, Laboratories, Hospitals (in case of Medical Colleges), Staff rooms, Hostel Accommodation etc. and for acquiring the required equipments such as Computers, Library books, Furniture, Sports equipments/ facilities etc. Target Customers Institutions imparting Primary / Secondary Education at School level. Pre-University Colleges. Medical Colleges (on selective basis) Engineering Colleges - as far as possible are to be avoided and not to be encouraged except in case of existing relationships which are healthy and worth pursuing. Institutions offering other Professional Courses such as Business Management, Computer Science. New institutions - on a very selective basis where the promoters command high integrity, respect and successful track record of being associated with such ventures earlier.

Eligibility Criteria Institution must be in existence for at least 5 years and must be generating surpluses for the past 3 years. The Institution should have a minimum Student strength of 500 and minimum Teaching Staff strength of 25. Audited financial statements to be furnished within 3 months from the close of each accounting period.
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M Power SSI
Product Definition A scheme formulated specifically to provide credit facilities to Small Scale Industry units engaged in activities like manufacturing, processing or SSSBEs, including Information Technology and / or Software industry. Key Features Granting of Term Loan / Working Capital/ Non funded limits such as Sight and Usance LCs, Bank Guarantees, LEF limits for forward contracts. Target Customers Small Scale Industries. Small Scale Processing Industry. SSBE engaged in Information Technology and /or software industry. Eligibility Criteria Unit should have been in existence for a minimum period of two years or the promoter should have been in the line of business for a minimum period of 3 years. Start-up units would not be covered under this scheme. Borrower should have shown cash profit at least in the preceding year. Minimum Debt Service Coverage Ratio (DSCR) shall be 1.25 for Term loans during the tenor of the loan.

MPower RICE MILLS

Product Definition A scheme formulated specifically to provide credit facilities to Rice Millers engaged in processing and / or trading of rice. The scheme offers Term Loans, Working Capital and Non Fund based Limit (LCs & BGs)
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Key Features Granting of Term loan for establishment of Rice Mills and working Capital limits viz. ODSIT & Book Debts, Bill Purchase / Discounting, Produce / Key Loan, Loan against WHRs and Non Fund based Limits ( LCs & BGs) without ceiling on the exposure. Target Customers Existing as well as new customers engaged in this line of activity. Eligible borrowers are: Individuals, HUF, Sole Proprietorship, Partnership, Associations Individuals, HUF, Sole Proprietorship, Partnership, Associations. Eligibility Criteria Good past track record of the entrepreneur in the business. Overall financial standing of the business enterprise. Market reputation and integrity of the borrower. Acceptable level of trade activity. Credit needs for stock-in-trade and credit sales. Risk coverage by way of the adequate securities offered for the proposed credit exposure.

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Credit Management
Credit management is a process of managing credit related activities in bank. Credit management involve:

Loan scrutiny and credit appraisal Documentation and sanction

Disbursement Monitoring the account Review Recovery

Loan Scrunity and credit appraisal

This is the first step to be followed after a client gives application for the approval of one/more facility from the bank. For sanctioning process to start, first the credit appraisal is done for which the required information is taken from the client and verified by bank. The purpose of credit appraisal can be: 1. Fresh Proposal The proposal of the company which has approached the bank

for the first time, i.e. which does not have any previous relationship with the bank. 2. Enhancement When a company is already enjoying one or more of the FB or

NFB facilities from the bank and want to increase the limit for the same then enhancement proposal is made. 3. Adhov Sometimes for a certain period the given limit is not sufficient for the

company to meet its requirements. In such case Adhov limit, over and above the average sanction limit, is provided to the client. Adhov is provided for maximum 90 days.
4.

Review If the client is new or the performance of the company as per

projected is doubtful then a mid review date is decided while approving fresh/enhancement proposal. Is such cases mostly the client asks for more limit as predicted by bank to fullfill its requirement. So post sanction conditions are put to the
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proposal, for example company has to maintain a turnover of 12 million and its TOL/TNW should not be more than 6. To monitor whether these conditions are meet review proposals are made before the end mid review month. The facility limit will remain same after sanction of review proposal only if all the conditions are fulfilled.
5.

Renewal If the clients want to keep the facility limit same as existing limit,

renewal proposal is made before the end of existing facility.

Credit Appraisal Memo (CAM) is prepared for the purpose of credit appraisal. In the CAM bank compile and verify the information about the client. This information is then analysed to find the risk associated with the client and predict the profitability that bank can expect after the sanctioning of the concerned proposal. For making CAM various documents are required to verify the information of the client. These documents are: 1. Duly filled prescribed application form. 2. Memorandum & Articles of Association/Partnership Deed. 3. Audited Balance Sheets and Profit & Loss Accounts along with schedules, Auditors Report/Tax Audit report for last 3 years. 4. Duly signed provisional financial statements for immediate previous year along with schedules etc. If audited is not available. 5. Up-to-date Figures of sales/purchase. 6. Duly signed projected Balance Sheets and Profit & Loss Accounts for next year/full tenor in case of loan. 7. Latest IT returns of the borrower/partners/directors etc. 8. Copy of latest sanction letter (for the credit facilities) from the existing banker/financial institute. 9. Form 311 duly signed by RM/Copy of valuation report for the properties offered as collateral security. 10. Duly filled & signed latest Net Worth statements of directors/partners/guarantors in the banks prescribed format ( Form No 479/480 ). 11. Call Memo signed by RM.
12. CIBIL reports of proprietor/partner/directors.

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13. Statement of account latest for last 6 months along with reasons for

lower/excess

credit

turnover/cheque

returning

etc.

/Banking

Summary/Repayment Track of loans.

14. Copies of various registration certificates i.e. VAT/DIC etc.

15. GRID ID creation proof whenever applicable. After above documents are received and verified CAM is made. CAM includes following details:
I.

Borrowers Background This include details about line of activity and end product of client, business process of the factory, promoters background, information about promoters share in the company and their experience, infrastructure details of the company i.e. name and address of factories/offices/godowns of the clients and information about the FB and NFB loan facilities enjoyed by the client from different banks.

II.

Credit Base - It includes future expansion plans of the firm, in case there is any major change in business process. Details regarding major customers and suppliers of the company, their contribution percentage, their contact person with contact number. Details about contact person of suppliers and customers are required to cross check the details about the company and their business.

III.

Relationship/Business Rationale This includes details about relationship experience if the client is already having relationship with the bank. Business rationale include the estimates of the earning that the bank will get after the proposal is passed in the form of processing fee and gross interest.

IV.

Financial Analysis of Client This includes the financial summary of the client for current year, audited details of previous year and projections for next year. In this financial summary some ratios are also included, they are TOL/TNW, inventory turnover, debtors turnover, creditors turnover and NP margin. This financial summary is used to analyse various parameters about the company and reason behind any major change in the company. The parameters that are analysed are turnover, profitability, leverage and liquidity of the company.
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V.

Risk Appraisal - Once the proposal comes we analyse the profile of the company to calculate the risk involved in giving the asked facility to it. The risk appraisal is done based on following risks:

1.

Business Risk and outlook - It covers Market Dynamics, Competitive

Positioning, Supply Chain Management, Technological Development/ Obsolescence Risks, Dependence on Single Supplier, Dependence on single Buyer and Products are dependent on a Single industry.
2.

Management Risk - It covers Management capabilities, Dependence on few

individuals, Presence of professionals and succession plan.

3.

Performance Risk - It covers Technical know-how, Raw material

souring/availability, Product delivery capabilities and Competition comparatives cost, product features.
4.

Structure Risk - It covers Product Structure, Document structure and Process

Structure.
5.

Industry Sector Concentration - It concentrates over exposure to a Particular

industry by the Bank.

6.

Country Risk - It covers convertibility, bans/sanctions on the country,

Currency Risk.
7.

Environment Risk - It covers the risks arising out of dealing with hazardous disposal of waste/effluent, Activities/Location dealing with

materials,

social/environment issues.
8.

Regulatory

Risk

It

covers

compliance

with

statutory/Regulatory

requirements, legal requirement and lending regulations.

9.

ING Vysya Banks Reputation Risk - It covers Moral and Ethical issues and

Social/Governance Issues.

10.

Specific Purpose of Asset Collateral - It cover the risks arising out of assets

put to specific usage and tailor made assets and the problems in disposal in case of need.

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11.

Financial Risks - It covers Operating Efficiency, Financial Stability and Cash

Flows.
12.

Transaction Risk - It covers Documentation Risk, Covers/Collateral Valuation

Risk and Interest Rate Risk. 13. Any other Risk

VI.

Take Out It covers both primary and secondary takeouts. It is the hypothecation and collateral securities kept by the company with the bank which can be taken by the bank in case of default.

VII.

SWOT It includes the strength, weakness, opportunities and threat of the company. This is found by the analysis of the sector with which the client is associated. This helps to understand the market position of the client.

VIII.

Policy Deviation Deviation from credit policy is also checked for the clients. There are three parameters across which deviation is analysed and observed. They are deviation in credit policy financial parameters, deviation in policy other parameters and verification of defaulter list.

(a) Deviation in Credit Policy Financial Parameters: The limits for the financial parameters is decided by IVBL, across which deviation is to be calculated. Under this explanation / justification for considering the request despite deviation has to be mentioned along with the time frame within which the deviation has to be corrected and brought within the threshold level has to be mentioned. The parameters and its limits are:Parameter Median Threshold Actual as of last 03-XX Minimum EBITDA/Net 0.03 1.75 0.02 1.50 Sales Minimum Interest Coverage Ratio (EBITDA/Interest &
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Remarks *

audited

B/s dated 31-

other finance charges) Minimum Current Ratio (Current Liabilities) Maximum (Total Assets/Current Debt Equity bearing

1.15

1.00

2.00

3.00

interest

Debt/TNW) Maximum TOL/TNW Minimum DSCR (EBITDA/interest plus current maturities in long

3.50 1.40

4.50 1.25

term Debt) *Here justification for considering with deviation is given. If the minimum value is above median then it is accepted, if its between median and threshold then also the deviation is considered but if the minimum value is less than threshold then the parameter fails. (b) Deviation in Other Credit Policy Parameters: It includes exposure norms in unit and industry/sector, tenor norms for exposure & rating, regulatory restrictions, takeover norms, FEMA/FERA requirements and Sec 19(2) of Firm act. All these are supposed to be compiled with the proposal and if not compiled then time lines has to mentioned within which compliance will be done. This is important as it states various norms to be followed by the firm across which deviations are checked to insure that in future company would not be facing any legal issues related to these norms. This information also helps to understand the firm better and thus if any change occurs in future the bank would be in a better position to examine the risk associated with it and problems that bank could face in future. (c) Verification of Defaulters List: We also check for the promoters in the default lists and take out their CIBIL to check the credibility of the promoters. These defaulter lists are RBI Defaulters list, wilful defaulters list, RBI Caution list, and ECGC and Special Approval list.
IX.

Highlights of credit investigation done It contains the summary of credit investigation report. CIR includes: - Observations made in the statement of account of the client - Personal enquiries made with banks/financial institutions
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- Market opinion with customer of the client, creditors of the clients and independent sources. - Details about visit to factory/office - Information through any other source - Conclusion to credit investigation.

X.

Compliance with statutory requirements It includes confirmation that all IT/ST/ PF/ESI payments have been made and there are no over dues and that all statutory approvals have been taken for conducting the business/ manufacturing activity.

XI.

Summary

of

conduct

of

the

account

It

is

done

in

case

enhancement/review/renewal. It includes very short summary of Account performance and covered in detail in Account relationship and monitoring sheet. Summary of account performance include earning of bank from this relationship and detail about utilisation of working capital limit. Utilisation of working capital is found from MIS system of IVBL.

XII.

Cover/Collaterals and covenants It includes details about primary cover, collaterals and net worth of the guarantees. This is done to insure that in case of default in repayment of facility, cover and collaterals provided by the firm to the bank are sufficient to overcome losses.

XIII.

Risk rating/Risk-reward/Profitability Bank earns profit from the facilities given in the form of the gross interest and income through commission.

Interest rate is decided at the time of approval of facilities. This interest rate varies from client to client depending on their credit rating and previous
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relationship with bank. Base Rate of the bank, IVBR (ING Vysya Base Rate), is the minimum interest rate that can be enjoyed by the customer.

The Commission earned by the bank depend on the type of proposal/facility. IVBL charges 0.5% on the renewal of the existing limit. While if it is a case of enhancement of limit or fresh proposal, 1% is charged on the limit provided.

Credit Risk Rating is an important part of Credit Appraisal as it determines the risk associated with the bank and thus profitability of the bank. To do credit risk rating we first calculate the credit risk which is further divided into three heads Business Risk, Financial Risk and Management Risk. While calculating cumulative risk of the firm, we give marks to the firm on the basis of various parameters under each head and find risk in respective head. Once individual risks are found, we do weighted summation to find the overall score of the firm based on which Credit Risk Rating is given to the firm.

Credit Risk rating varies from CRR1 to CRR7. The parameters are rated based on following condition:
Good Satisfactory Parameter Vulnerable (7) IILM 37 Excellent Adequate Marginal (6) Strong (2)

(1)

(3)

(4)

(5)

Business Risk Status Growth Clients Position Business Industry/ Suppliers Monopoly in Local Market Successful track record for more than 25 years Client has significant market share Good track record for more than (>20% market share) 10 years Insignificant player compared to competition Borrower is a start up venture Competitive

Long term relationship with well established suppliers.

Industry well established and growing very fast, i.e. >20% annually Industry well established and growing fast, i.e. >10% annually Industry well established and growing modest, i.e. >5% annually

Long term contract with suppliers is in Local market leader. Weak competition Good track record for more than place. 15 years

Borrower is very important to the suppliers.

Dependant on one/ two large suppliers. Client is one of the several large player Good track record or more than 5 Mature industry but with modest growth with >10% market share years Less than 5% market share Acceptable track record for more Regulatory change/ price fluctuations are than 3 years frequent Established for more than 3 Industry subject to wide cyclical swings/ years, viability not yet proven/ Hazardous established Industry in long term decline/ Unfavourable

Commodity business. Supplier-Buyer relationship is unimportant.

Borrower is unimportant to the suppliers. Losing market share or facing cut throat competition

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Supplier relationship is unstable.

Financial Risk DSCR PBDIT > 25% PBDIT > 20% PBDIT > 15% PBDIT > No growth but very TOL/TNW < Current Ratio > 10% stable sales 2.0 1.20 PBDIT > 5% PBDIT < 5% Sales widely TOL/TNW < Current Ratio > fluctuating 2.5 1.0 Sales show TOL/TNW > declining trend 2.5 Current Ratio <1.0 DSCR > 1.25 PBDIT Negative No sales history TOL/TNW > 4.0 Current Ratio <0.75 Leverage Liquidity Customers PBDIT/Sales Sales Growth

DSCR > 3.0

Annual average TOL/TNW < Current Ratio > Long term relationship with well established growth > 20% 0.5 2.0 Customers. Annual average TOL/TNW < Current Ratio > Long term contract with customers is in place. growth > 10% 1.0 1.5 Annual average TOL/TNW < Current Ratio > Borrower is very important to the customers. growth > 5% 1.5 1.33 Dependant on one/ two large customers.

DSCR > 2.5

DSCR > 2.0

DSCR > 1.5

Commodity business. Seller-Customer relationship is unimportant. Borrower is unimportant to the customers.

DSCR > 1.0

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DSCR < 1.0

Customer relationship is unstable.

Management Risk Family History Most prominent and respected family with long history. Integrity Standing/

Unquestionable integrity. Highly respectable. Unquestionable integrant. Highly respectable. Generally respected for integrity but, not yet tested

inters.

Highly respected closely knit family with varied business and cultural

Well regarded family with a long history. Members operate independentaly.

Well established family. Generally favourable reports. Prominent member of community. No adverse report.

Well established family. No adverse reports.

No adverse reports.

Family history is short. First generation. No adverse reports.

Not well known in market. No reports available.

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Known family feuds. New rich with potential connections. Integrity suspect but no proof or evidence available

Standing

Financial

Competence

Management

enlightened. Highly competent, enterprising and knowledgeable. Above Average competence. Good business sense, but perhaps weak in finance/ administration. Average competence. Lacks strategic thinking.

Most competent in business community. Highly Enormous wealth. Insignificant debt. Strong liquidity. Free assets > 200% gross liabilities. Good liquidity. Free assets > 100% liabilities. Satisfactory liquidity. Free assets > 50% gross Liabilities. Fair liquidity.

Free assets available but liquidity are susceptible.

Average competence level. Free assets negligible. Still has some capacity to borrow clean.

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Unproven competence.

Poor fund raising capacity in case of need.

Professional management. Succession no issue.

Successor is already identified and ready to step-in. Strong commitment. This business is the main contributor. Good commitment. This is one of the few main This is one of the several activities. Commitment is adequate. Level of commitment changing from year to year.

Owner/s have well defined and practical succession plan. businesses. No difficulty anticipant in succession.

One man show. His legal heir may be able to takeover.

One man show. But professional managers will ensure continuity.

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Succession may pose a problem if owner dies.

Succession

Management

This is the only business. Unwavering commitment.

This is a minority activity. Commitment is unclear.

Management lacks commitment to this business.

Commitment

Quality

Internal

Excellent internal control system with frequent testing. All key position held by well qualified member of family. Good internal controls. Have stood the test of time. Good internal control systems. No major lapses so far. Internal controls exist but largely untested. Highly qualified and motivated employees at all levels. Motivated and loyal employees with sound knowledge. Loyal and honest employees but lacks motivation.

Not formal internal controls. Owners supervision strong. Not formal internal controls. Owners supervision average.

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Minor lapses noticed due to the lack of internal controls.

Controls

Motivated employees, but questionable loyalty.

Employees are new and/or not experienced.

Employees have little competence and/or authority.

Employee

Record

Record

Repayment

Compliance

particular group. Unsatisfactory compliance records. Chronic defaulter in compliance.

Strong commitment to compliance in letter and spirit. payment.

Borrower always prepays amount due. Excellent track record of Good repayment record. Occasionally prepays. All payments are made on time.

Complies with all conditions and covenants.

All major/ critical conditions are complied with.

Seeks prior approval when conditions cannot be complied Payments are occasionally delayed for a few days or extensions sought. with. A few payments delayed up to 30 days or new relationships.

Attitude to compliance is lax or New relationship.

Frequent overdue but settled. Mostly settled within 30 days.

After giving score to each parameter, risk rating is calculated for business risk,

financial risk and management risk. It is an average of all sub parameter under a

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Most payments are delayed for more than 30 days.

The final score of the firm is the cumulative summation of all twenty parameters. On the basis of this cumulative score overall Credit Risk Rating of the firm is done as follows: Total Score 1 2 3 4 5 6 7 Credit Risk Rating 20 to 29 30 to 49 50 to 69 70 to 89 90 to 109 110 to 129 130 to 140 Remark Excellent Strong Good Satisfactory Adequate Marginal Vulnerable

Credit Risk Rating of a firm is always done based on the details of latest

available audited Balance Sheet and Profit & Loss statements.

XIV.

Summary of Assessment While making CAM (Credit Appraisal Memo), we also find the assessment of Limits and Guarantees, i.e. the amount of limit for different facilities that can be issued. These assessment methods are:

1.

TERM LOAN ASSESSMENT- Assessment of term loan includes term loan

eligibility, total number of instalments to be made to repay loan and amount of each instalment. Apart from instalment interest on loan is also considered while making assessment. After finding term loan eligibility DSCR, debt service coverage ratio, sensitivity is found.

DSCR=

(Net profit after Tax + Interest on TL + Depreciation) (Interest on term loan + Term loan Repayment)

Debt service coverage ratio sensitivity is found by find DSCR over the loan period with present profitability, 5% reduction in total income, 10% reduction in total income, 15% reduction in total income, 5% increase in COGS and 10% increase in COGS.
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Minimum debt service ratio (DSCR) shall be 1.25 for Term Loans during the tenor of the loan.
2.

WORKING CAPITAL ASSESSMENT. Methods of assessment are: Cash

Flow Method, MPBF Method and Turnover Method. Turnover Method _ Mainly used for small trading companies _ Not appropriate for manufacturing and big trading companies _Applicable for limits up to 6 corores. _Originally suggested by Nayak Committee for SSI units. The method is: Sales Turnover 25% of Sales turnover 5% of sales turnover projected as margin Actual NWC existing as per last financial statement (b) (c) (b) (d) Maximum permissible bank finance Additional Lending to be brought in (a) (b) { = 0.25*(a) ) (c) (d) (e) (f) (g) { = minimum of (e) and (f) } (h) { = (c)-(d) }

Cash budget system/ Cash flow method _ Mainly used for service sector companies _ Cash outflow Cash inflow = Bank finance in form of WC Maximum Permissible Bank Finance (MPBF) _ Also known as Tondons method, Tondon Committee Recommendations, is mainly used by the banks for assessment of WC finance. Method used is as follows: Stocks Receivables Other Current Assets Total Current Assets Less: Credit Available on Purchases Other current Liabilities Total Current Liabilities excluding bank borrowings Working Capital Gap 25% of current assets (a) (b) (c) (d) (e) (f) (g) (h) {= (d) (g) } (i) {= 0.25*(d) }
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Projected NWC (h) - (i) (h) (j) Maximum Permissible Bank Finance

(j) (k) (l) (m) { minimum of (k) and (l) }

3.

ASSESSMENT OF SOD- The method used for the assessment of SOD is(i) (ii) 20% 0f Projected Turnover 3 Times of the Promoters Net Owned Funds in the business. {For computation of Net Owned Funds, eligible Quasi Capital Component deployed in the business on a long-term basis can be included} (iii) Lower of above items- (i) or (ii)

4.

ASSESSMENT OF PCL- The method used for assessment of pre shipment

cash limit is: PCL Requested Export Sales Estimated Raw materials, stores & spares, labour cost estimates Period required to convert the Raw material to Finished goods No. of export cycles in a year Amount of material/labor required for one cycle Margin Stipulated Eligible PCL Limit Recommended (a) (b) (c) (d) (e) {= 360/(d) } (f) {= (c)/(e) } (g) (h) {= (f)*(1-(g)) } (i)

5.

ASSESSMENT OF PSL- The method used for assessment of post shipment

cash limit is: PSL Requested (a) Export Sales estimated (b) Usance period extended (including normal Transit (c) period) No. Of Cycles Eligible PSL PSL recommended (d) {= 12/(c)} (e) {= (b)/(d)} (f)

6.

ASSESSMENT OF INLAND LETTER OF CREDIT

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Annual Purchase of Client Domestic Purchase in percentage Total Domestic Purchase Domestic Cash Purchase Domestic Credit Purchase Domestic credit Purchase on DA basis Domestic credit Purchase on DP basis Transit period for Inland DP LC {months} Usance period for Inland DA LC {months} Total Lead Time for DA-LC {months} Total Lead Time for DP-LC {months} ILC requirement for DP-LC {months} ILC requirement for DA-LC {months} Total ILC requirement

(a) (b) (c) {= (a)*(b) } (d) (e) {= (c) (d) } (f) (g) {= (e) (f) } (h) (i) (j) {= (h) + (i) } (k) {= (h) } (l) {= (f)*(j) } (m) {= (g)*(k) } (n) {= (l) + (m) }

7.

ASSESSMENT OF FOREIGN LETTER OF CREDIT Annual Purchase of Client Import Content in percentage Total Import Average monthly import purchases Import duty element in percentage Duty amount/month Net Import Value/month Imports on DA basis Imports on DP basis Transit period for imports months Usance period for imports months Transit period for imports Total lead time for DA-LC months Total Lead time for DP-LC months FLC requirement for DA-LC FLC requirement for DP-LC Total FLC requirement FLC Proposed (a) (b) (c) {= (a)*(b) } (d) {= (c)/12 } (e) (f) {= (d)*(e) } (g) {= (d) (f) } (h) (i) {= (g) (h) } (j) (k) (l) (m) {= (j) + (k) } (n) {= (j) + (l) } (o) {= (h)*(m) } (p) {= (i)*(n) } (q) {= (o) + (p) } (r)

8.

ASSESSMENT OF GUARANTEES

Guarantee requirement for contractors No. of contracts to be bid during the year % of contactors that require bid bond guarantee Hit rate (%) Contracts that will be assigned during that year Contracts that require bid bond guarantees % amount to be guaranteed Bid bond guarantee amount required during the year Security deposit % to be kept Security deposit guarantee requirement (a) (b) (c) (d) (e) (f) (g) (h) (i)

{ = (a)*(c) } { = (a)*(b) } { = (e)*(f) } { = (d)*(h) }

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Mobilization advance guarantee % Mobilization advance guarantee requirement Performance guarantee % Performance guarantee requirement Retention money guarantee % Retention money guarantee requirement Total financial guarantee requirement

(j) (k) { = (d)*(j) } (l) (m) { = (d)*(l) } (n) (o) { = (d)*(n) } (p) { = (g) + (i) + (k)

+ (o) } Total performance guarantee requirement (q) Total performance guarantee requirement (r) Total Guarantee requirement (s) Assumption: All contracts assigned during the year require all types of guarantees. Note: If all the contracts do not require all the types of guarantees, the individual guarantee requirements have to be worked out based on only the contracts that require them.
XV.

Conclusion/Recommendation On the basis of analysis of above discussed parameters, it is decided by the author of the report whether it is beneficial for the bank to sanctioned the concerned facility limit to the client.

After CAM is made, it is passed to higher authorities for approval.

Sanction & Documentation

If sanctioning committee finds the proposal in favour of bank and all documents are as per banks norm, proposal is approved. After the approval of the proposal, documentation is done depending on the facility client is approved of.

Disbursement
After the proposal is approved by the sanctioning authority, disbursement process started. Before disbursement the bank follows some processes to ensure protection against future risks. These processes include valuation of collaterals provided, transfer of documents of collaterals from client to bank, opening an account of the client, charging processing fee, etc. After all the pre disbursement documents are signed and processes completed, disbursement of facility is done depending on the type of facility and conditions stated in the sanctioning/decision letter.

Monitoring the account

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After disbursement of facilities to the client, it is very important to monitor whether these facilities are properly utilized. For this credit monitoring is done. Details observed while monitoring are:

Background the customer- This includes name of the customer (company), Its constitution (Private limited, Limited, Sole Proprietorship, Joint venture company and partnership) , industry to which the company belong ( steel, textile, manufacturing, service, polymer and trading), the application of products produced by the company. Information about firms registered office, godowns and factories, major change in business structure, date and year of establishment and promoters is also included.

Account Number- This includes the type of accounts the customer is having

with the bank. This may be current account or working capital demand loan (short term loan) or both. This gives the glimpse of the limits being sanctioned to the customer.

Relationship with the bank- This includes the time from which the company is

with IVBL, last sanction of limits to the customer. This helps to understand the relationship customer is sharing with the bank.

Details of limits- This includes the type of limit customer is availing from the

bank, its amount, the return that the bank gets from this sanction, i.e. pricing of the limit and the margin on which limit is approved on. This also contains the types of limits availed by the customer from banks other than IVBL and the amount of these limits. The limits are considered separately under fund based and non fund based limits to better understand the need of the customer.

Collateral Details It includes the type of collateral client has provided, i.e.

whether it is residential, commercial or industrial plot. The value of the land, building and property as a whole. The date on which valuation was done and if there is insurance of the property then insurance details, which includes insurance amount and date till which it is valid.

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Stock Insurance details- This includes the amount and date of expiry of stock

insurance, if done. This taken as stock is among the primary covers taken by the bank and insurance details tells the amount that is assured to be received by the bank in case damage causes to stock.

Deferrals pending- This include details of the deferrals pending and sanction

terms which are non compliance till now.

Financial Details- This includes the audited or provisional details of current

year and projections of next year. Financials that are included are Net Sales, Stocks, Debtors, Creditors and Net worth of the company. This information is used from time to time analyses for checking whether the account transaction are in accordance with the monthly information given. This indicates whether the given facility is properly utilized for the purpose it is being given.

Monthly analysis of Account and Stock Statement - till now we have

monitored those details which are more or less common for whole of the year. Now we analyse the companies activity and utilisation of the limits. We ask the clients availing cash credit limit to send monthly stock statements to the bank office. These details are then matched with the transactions made in the account of the client. Monthly stock statements have details about sales, stock, debtors and creditors for that particular month. These details are used to calculate DP, drawing power, of the client. This DP is the maximum amount that the company can debit once the bank balance is zero. Thus to check if the client is not overdrawing we find the churn in the account and the average utilization of the limit by seeing the turnover of the account for that particular month. We also check for check return, both inward and outward, to check the authenticity of the clients customer. If there are more o/w, outward, check returns and that too with the majority of same customers repeating every time, then this means that the customer of the client is not capable to do payment and thus the relationship of our client and this customer is a matter of concern. In the same way if there are more i/w, inward, check return, then commitment of our client is questionable as he is trying to do beyond his capacity which would be concern for bank.
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Unit Visits- Regular visits are made to the clients office/factory/godown to

check if the things really happening are as stated by the customer. This also helps in understanding the business of the client in a better way and thus helps the bank to predict any unwanted situation. At least one unit visit has to done in a quarter.

Multiple banking exchange dates- If the client is having account/limits with

other banks also, information regarding the same is exchanged between the banks. At the end of the year, these monthly information are used to analyse the account of the client, collateral related issues and seeing whether the projected figures are met. Property these days is one of those things whose prices changes very rapidly. Because of this valuation of the collaterals are done within 2 years, according to RBI collateral taken should not have valuation more than 5 years and regular valuation is necessary in every 5 years. At the end of the year the monthly information that we have collected for the clients is changed into average which is compared with the projections. If some deviations are found, these monthly information helps to understand the reason behind it and further inquiry is done with the client. Drawing Power : While doing monitoring, drawing power for the clients, availing cash credit facility from the bank, is calculated monthly. Drawing Power is the maximum permissible credit limit given to client, once his account balance reaches zero. To take out cash beyond drawing power limit, client has to take special permission from the bank. In such cases bank provide two types of facilities to the client TOD (Temporary Over Draft, valid for maximum of 15 days) and Adhoc (Over and above the average sanction limit, valid for maximum of 90 days). For calculating monthly drawing power of the client, stock statements are analysed and checked to see whether the given creditors and debtors are in accordance with the details given by clients to the bank. The method used to calculate DP is: 1. We take monthly information of stock, Creditors and debtors from the client

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2.

We find the eligible debtors from the information given. This is found by

calculating the number of debtors less than certain days, specified by the bank during approval of loan. 3. debt) 4. 5. Similarly we find value of paid stock by subtracting creditors from total stock. Once paid stock is found, we find DP on stock by the formula: Paid stock x Then we find the DP on Debt by the formula: eligible Debt x (1- margin on

(1-margin on stock) 6. 7. Then we find total DP required by adding DP on stock and DP on Debt. Then we subtract this total DP by the outstanding facility enjoyed by the client

from other bank. This gives us net DP 8. If the net DP is less than the limit given by us then the Available DP is equal

to net DP, otherwise Available DP is equal to the credit limit given by IVBL. All these steps can be summarized in the form of following formulas:

DP on Stock DP on Debt Net DP

= ( Stock Creditors ) * ( 1 Margin on Stock ) = Eligible Debt * ( 1 Margin on Debt ) = DP on Stock + DP on Debt

Available DP = Net DP outstanding facilities

Review
The financial details and business structure of the client are periodically reviewed to check whether all post disbursement conditions are being fulfilled by the client.

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Recovery
Bank gives loan to earn from the facilities it is providing. Whenever a loan is sanctioned, pricing of facility being providing is stated in the sanction letter. Client has to repay the loan amount according to the instructions mentioned in the sanction letter. Repayment method differs for different facilities. For example, for term loan repayment has to be done periodically till a fixed tenor while for cash credit facility repayment is done on demand basis. If the customer is unable to repay the amount then the security provided by him is used to recover the loan amount. For this a proper legal action is taken and thus a legal advisor is required.

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Objective of Internship

The objective of this internship is to understand the procedure of lending to SMEs at ING Vysya bank. I did my internship at Punjabi Bagh branch of ING Vysya, in New Delhi, under the guidance of Mr. Sumit Khari and Mr Deepak Gupta. The objective of this internship was to understand SMEs lending at ING Vysya bank. There are different schemes for SMEs to get easy fund based loans and non fund based loans at ING. Knowing these schemes and understanding various types of risks associated with the clients and practices adapted by banks to hedge these risks is one of the main aim of this internship. During my internship I am supposed to work on different projects to understand credit appraisal and monitoring in details and to work on it to understand the importance and significance of various issues related to them. Through these projects, I wanted to get a real time experience of procedure followed while doing credit management. My internship includes projects on drawing power calculation, monitoring and credit appraisal. These projects are provided to me with the aim to obtain knowledge and experience about keeping the track of the accounts of the clients, to see if all the conditions are properly followed by them, finding the risk associated with the client and figuring out the limit that should be sanctioned to minimize possible losses.

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METHODOLOGY FOLLOWED

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Whole of my internship can be divided into three stages. At stage one I worked on drawing power. This helped me to understand the significance of drawing power and method of its calculation. At stage two I did project on monitoring. This stage is a very important part of business banking as through this track of the clients account to confirm proper utilisation of the limit facility given to him. Stage three of my internship is credit appraisal. Methodology followed in all these stages are described below: STAGE 1: Drawing Power Clients who have availed cash credit facilities from the bank, have to sent their monthly stack statements to the bank by the end date allotted to them. End date is same for each month and by this date stack statements of previous month are supposed to reach at the bank. For example if the end date of a client is 7 th, stock statement of April should reach bank by 7th May. Details from these stock statements are then used to calculate drawing power using the formula, which is already described under the section of background. STAGE 2: Monitoring After completing the project on drawing power, I did monitoring of the clients enjoying various facilities from IVBL and having their accounts in Punjabi Bagh Branch, ING Vysya Bank. In this I went through the files of clients which helped me understand the history of the client. While doing monitoring, I accessed the information related to the account from the MIS of ING. The details regarding monthly sales and stock statement are asked from the clients itself. Audit reports and updated financial statements are used while doing monitoring to understand the current situation the client. Any major issues related to the stock or credit audit is also checked. And if there is any such issue with the client, present status of the issues are stated in the monitoring sheet. This helps to keep track of such issues. STAGE 3: Credit Appraisal After Monitoring, I worked on credit appraisal. For this credit appraisal memo, CAM is made. Before making CAM, purpose of the proposal is decided depending on the

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application of the client. Depending on the purpose and the relationship of client with the bank necessary documents are asked from the client. For the existing clients, the information about the client is already with the bank. But the documents are verified to know if there is any major issue or major change in business structure of the client. Once all documents are found as per banks norm, proposal is made depending on the requirement of the client. I started making CAM with financial analysis part. In this part, the balance sheets and profit & loss account of used to get the financial summary of the client for previous years, current year and next years. This financial summary is then used to find if there is any deviation in the financial policies set by IVBL. Profitability and earning of bank after the sanctioning of proposal is also estimated through this summary. Previous years actual earning is also compared with the estimated earnings during previous proposal and reason for the deviation is analysed. Monthly sales of current year are taken to make out any major change in the pattern of yearly sales and to predict if the projected sales would be achieved. Apart from this any major change, for example government policies and regulation, in the sector with which the client is associated is also analysed. If client is into importing or exporting then country risk is also estimated. This includes political and financial stability in that country. Once all these information are collected and analysed, CAM is prepared. If the proposal is found satisfactory, this CAM is then passed to sanctioning authorities. For a fresh proposal, i.e. new client, first the primary verification about the client is done. The primary verification about the fresh client is done by searching for his website on internet. Through this primary information, line of products and industry of the client is verified. After this, information about the firm/client and its directors is found from the website of Ministry of Corporate Affairs. After the primary verification of client and its promoters are found satisfactory, its suppliers and customer information is also verified through internet. Other sources are also used to find the market position of the client. Once these information are found as per the information given by the client, client is approached and asked for all the required documents. These documents are used for secondary verification. The suppliers and customers of the client are then contacted to know more about the clients and also to verify their relationships with the client. The factories and offices of the clients are also visited to understand the working of the client. The proposed collateral is also
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visited and its value is estimated to find whether the collateral is enough to cover the risk associated with the facility asked by the client. Once every document is as per banks norms, proposal is prepared depending on the requirement of the client. After this the procedure followed for making CAM is same for the existing clients and new clients.

ABSTRACT OF CASES DONE DURING INTERNSHIP

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Case Limit (in lakhs) 154.08 183.72 25% 137.79 462.12 180 Days 461.78 25% 346.34 484.13 0 25% 115.56 518.21 90 Days 468.37 35% 304.44 420 0

Stock

Creditors Paid Stock Margin %

DP on Stock

Total Valid up Debt to

Valid Debt

Margin %

DP on Debt

Total Total DP O/s

Net DP

DP Available

1.

300

154.08

0.00

420 484.13

300.00 484.13

2.

500

424.91

241.19

3. -18.74 226.14 -99.826 -230.11 25% -172.58 222.19 90 Days 22.19 25% -74.87 249.48 90 Days 249.48 25% 169.61 257.8 90 Days 190.51 35% 25% 40% 25% -14.06 1382.89 90 Days 1155.57 35%

300

2258

2714

-456

25%

-342

3249 90 Days

2617

25%

1962.75 1620.75 751.12 737.07 123.83 293.44 187.11 112.24 13.31 -159.27

900 350 0 0 0

720.75 387.07 293.44 112.24 -159.27

300.00 75.00 200.00 60.00 0.00

4.

75

1052.74

1071.48

5.

200

259.85

33.71

6.

60

153.68

253.506

7.

400

557.01

787.12

found different from each other and covers almost all possible situations.

8.

1200

5926.57

2303.67

3622.9

25%

2717.18

3234.54 90 Days

2699.88

25%

2024.91 4742.09 2500

2242.09

1200.00

Drawing Power Calculation: Here I have provided data for 9 cases, which i

9.

200

174.1

46.36

127.74

25%

504.00

1612 90 Days

1612

35%

1047.80 1551.80

400

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1151.80

600.00

Credit Appraisal: I have made the proposal for the enhancement of limit of two firms during my internship. Data related to these proposals are given below. The name of the firms is not mentioned to keep their identities concealed, though most of the key informations about the project are kept intact. Some other changes are also done to keep the privacy of bank and client. Case 1: ABC Agency
Control Information Application No. Borrower Name Banking arrangement Line of activity Constitution Sub-section for PSA Type of Exposure Limits valid till Trading of Yarn Partnership Manufacturing Renewal 30.06.2011 Priority Sector Banking with IVBL since Service Enterprise Enhancement Micro Fresh No June-2010 Small Ad hoc Others ABC Agency Sole Asset Classification Standard Application date 10/05/2011

Review

Last approval on

25.06.10

Credit Risk Rating

Particulars

Remark
(Financial Information per last
audited accounts as on 31-Mar-10)

Industry/Business Status Clients HistoryGrowth in Turnover & Profitability Competitive Position Suppliers Customers Liquidity Leverage

Industry with consistent need based demand and adequate margins Strong financial backing and vintage business. Good turnover looking at IVBL proposed exposure. Less than 5% market share Depend up one -two large suppliers Borrower is important to the customers Adequate liquidity with current ratio of > 2 The leverage is satisfactory looking at substantial USL of

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[TOL/TNW] Sales Growth PBDIT/Sales DSCR

family members. It is less than 1.0 Satisfactory growth in turnover during last financial years More than 20% in FY 10 We are not taking any TL exposure, however DSCR is well above median. General respect for integrity Ethical and traditional business family Free assets >50% of Gross liabilities Sound Good No difficulty to anticipate the succession Motivated Employee Internal Control exists All Payments are made on time All Major /Critical conditions are complied with

Integrity Family Standing/History Financial Standing Management Competence Management Commitment Succession Employee Quality Internal Controls Repayment Record Compliance Record Business Risk Score Financial Risk Score Management Risk Score Total CRR

3.6 1.8 3.3 60 3

Exposure to Borrower/ Group and CRR Existing Borrower Group Exposure Rs. 300.00 lacs Rs. 300.00 CRR 3 lacs 3

Proposed Borrower Rs. 500.00 lacs 3

Group Rs. 500.00 lacs 3

PURPOSE OF APPLICATION: IILM 62

Credit facilities recommended lakhs

Sl No Nature of facility Existing Limit O/S as on 12.05.2 011 O/ D if any
By Br/ RM By RO

INR in
Proposed limit Terms- RoI, margin, tenor, usance period, commission details, etc) Existing Proposed

1.

Cash Credit

300.00

239.27

500.00

500.00 -

ROI: IVBR + 4.35% (i.e.13.25%p.a.) (Presently IVBR is at 8.9%) Margin: 25% on stocks and book debts upto 90 days

TOTAL

300.00

500.00

500.00

FINANCIAL ANALYSIS OF CLIENT Particulars Previous Year (audited) 2008 1) Sales 2) PBDIT 3) Interest 4) Depreciation 5) Taxes 6) PAT 7) Capital 8) Loans IILM 63 35.03 Previous Year (audited) 2009 Previous Year (audited) 2010 94.88 37.07 15.53 1.22 0.00 20.32 101.92 36.06 Current Year (provisional) 2011 1,657.19 179.55 42.66 1.04 42.00 93.85 360.75 55.64 2012 3,000.00 315.34 60.00 1.00 84.78 169.56 530.31 55.64 Next Year

(Projections)

74.61 32.05 13.77 1.51 0.00 16.78 100.82 8.00

15.02 8.73 0.57 0.00 5.71 90.57

Unsecured 16.51

9) Loans from Other/Our Banks a) Term Loans b) OD/CC 10) Current Lia.
0.00 27.19 4.46 32.10 2.38 47.22 0.00 284.94 0.00 500.00

33.98

42.77 1.95 7.88 145.66 0.00 26.97 0.62

61.91 0.00

303.43 0.00

537.00 0.00

11) Non Current 0.00 Liabilities 12) Fixed Assets 13) Assets a) Stocks b) Debtors

3.25

6.66 193.24

5.85 713.15

4.85 1,117.50

Current 137.80

0.00 16.49
current

3.86 92.04 0.14

154.08 518.36 0.34

275.00 770.00 0.50

c) Cash & Bank 1.22 Bal. a/cs 14) Non CA 15) Current Ratio 17)TOL/TNW (without USL) (with USL) 18) In

0.00 4.06 0.56 0.32

0.00 3.41 0.52 0.41 0 132 36 22.5

0.00 3.12 0.96

0.00 2.35 1.00

0.00 2.08 1.12

0.45 44

0.73 40

0.92 40

Inventory 0

Turnover 19) Turnover 20) Creditors 300 65 3 4 Debtors 172 354 114 94

Turnover 21) NP margin

16.3

21.42

5.66

5.65

Turnover: Turnover the firm comprises primarily of commission income till date as firm has shown only consignment sale till last FY to avoid sales tax . In FY 2009 commission income has been shown as actual sales, for better understanding in audited balance sheet the same is being represented in terms of commission income . But from current FY the firm plans to do direct sales and has projected a turnover of approx. 3000 Lacs
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. Further there is another change in business model from 2009 as till 2009 majority of consignment sale was to group firm ABC Textiles but now as the two firms are now merged, firm will do direct sale so the sale of the group will increase and double counting of sale will not happen. In the FY 11 firm has achieved Rs 1657.19 lacs which is more than 1750% increase over the FY 10.The turnover break up of the firm are as follows:-

Month April May June July Aug Sept Oct Nov Dec Jan Feb Mar Total lacs) 105.86 126.21 134.61 149.74 175.19 224.26 200.53 215.12 266.76 203.61 250.34 306.10 2358.34

Sales Turnover (In

The companys products are in huge demand with almost all the product pre booked even before reaching Delhi. And as per customer is not even servicing 40 % of customer demands and with availability of funds he can increase the turnover easily. As the business model which he has he has to pay both for RM and job work well in advance and gives goods on credit. Their will be no inter group sales in future further the firm does not keep any group concern as debtor same can be verified from previous years debtor balances there was some balance only in last FY financials which was only a month end figure. Profitability: Net profit margin of the firm was at 21.42% in FY09, which decreased to 5.6% for FY10 and remained almost constant to 5.5% in FY 11. The reason for same is that for FY 09 the same has been calculated on commission income and in FY 10 and FY 11 same has been calculated on actual sales.
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Leverage: TNW of the firm comprises of partners capital, reserves. TOL of the firm comprises of sundry creditors, working capital bank finance, unsecured loans from bank and other short-term liabilities. TOL/TNW of the firm is 0.41 for FY 09, which has increased to 0.45 for FY 10. Further in the provisional for FY 11 it was 0.73 times which itself is with in the norms. Now after having more exposure from us, still it is projected to be 0.92 times only.

Liquidity: Current assets of the firm comprise of debtors and inventory & Cash & bank Balances, and Current Liabilities of the firm comprises of sundry creditors and working capital bank finance. Current ratio of the firm is comfortable in all financial year. In FY 12 it is projected to be 2.08 times. Turnover in days Raw material is sourced on cash or Avg credit of 25-45 days. The firm gives an Avg credit of 90-120 days to its customer and new customers are given credit after good reference check only, there have been no bad debts in the business. Till now the firm doesnt maintain the holding period for the inventory. After being separation of sales from the group concern, now the firm is going maintain the inventory in the projections. The payment terms varies from party to party from 7-90 days with avg being 2 months . The debtors are higher for 31.3.2010 on account of higher sale to one regular party KPY Ltd. Rs. 232.25 lakh to this party firms provide a credit of 90 days. Out of total debtors of 518.20 Lakhs debtors more than 90 days is only 49.83 Lacs that to only few days more than 90 days and subsequently settled. More often firm has debtor less than 90 days. RISK APPRAISAL
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Business Risk and Future Outlook

A report entitled Cotton Contamination Survey 2009 released by ITMF (the International Textile

Manufacturers Federation) indicates that the level of cottons modestly or seriously contaminated as 2007), of which 6% was seriously contaminated by some sort of foreign matter while 16% was

perceived by the spinning mills all around the world remained constant at 22% (same as to last survey in

moderately contaminated. 42% of all cottons processed were contaminated by organic matter such as

leaves, feathers, paper, leather, etc. and 4% was from tar contamination. Other serious contaminants were plastic film, and strings made of cotton. This survey shows that cotton originated from India, Pakistan,

strings made of jute Hessian, strings made of woven plastic, fabrics made of cotton, fabrics made of

Egypt, Uzbekistan and Mali was found to be the most contaminated cotton. On the contrary, very clean California), Israel, Australia, Brazil, and the Ivory Coast. The survey indicates that the presence of sticky cotton as perceived by the spinning mills dropped from 21% in 2007 to 16% in 2009. However, this level of stickiness is still high and remains a major problem to the spinning industry

raw cottons could be found in the USA (Texas High Plains, Memphis, Pima, South Eastern and

Management Risk ABC Agency is promoted by Mr. XY, who manages the business affairs of the as a partner. He is wellexperienced business persons, manages the affairs of the firm with the help of professionals persons and skilled employees. Performance Risk doing well in printing business but now with increased pressure from the existing customers, firm feels the need to enhance its production capacity in printing business. Further the firm also planning to diversify into flour mill business, in which they have sufficient exposure and expertise. Thus low performance is perceived.

The firm financial position is satisfactory and meets various financial parameters. Presently the firm is

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Structure Risk Limits are being offered to the customer as CC limit. Industry Sector Concentration Within norms. Country Risk No country risk is involved in the exposure. Environmental Risk Firm is in the business of trading of yarn. So no environmental risk is there. Regulatory Risk

The firm complies with all significant statutory and regulatory requirements and no risk is associated with the same. ING Vysya Banks Reputation Risk friendly and in spite of having huge property, they are running business to earn profits as well as serve and help the families of the workers working in the firm. Specific Purpose of Asset Collateral The property being offered as residential property on which printing press is located. The flour mill division is also going to be located therein. The property on which these units are being set up is located in a prime industrial area and low risk is associated with disposal in case need arises.

There are no risks associated with the moral or ethical issues. Infact, the management is employee

Financial Risk The firms financial position is satisfactory and meets various financial parameters. Presently the firm is doing well in printing business but now with increased pressure from the existing customers, firm feels the need to enhance its production capacity in printing business. Further the firm also planning to risk is perceived. Transaction Risk Documentation risk: All documentation as advised shall be carried on and no documentation risk is envisaged. Covers/Collateral valuation Risk: empanelled valuer has valued the collateral and it is above the 100% of
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diversify into flour mill business, in which they have sufficient exposure and expertise, thus low financial

the facility. Thus no risk is envisaged with regard to the same. Interest Rate Risk: The rate of interest is a floating rate linked with IVBR and thus shall be taken care of. Any Other Risk No other risk envisaged. COVER / COLLATERALS AND COVENANTS Collaterals

Land Present Proposed

Building Machinery -

Others -

Total Rs.550 lakhs Rs.550 lakhs

Cover % 183.33% 110%

Rs 550 lakhs Rs.550 lakhs

NW of Guarantors - Personal / Corporate guarantees: Promoters Other persons Present Proposed Rs.2000.67 lakhs Rs.2399.30 lakhs Corporate / Group concerns Rs.2000.67 lakhs Rs.2399.30 lakhs Total

RISK RATING/RISK-REWARD/PROFITABILITY Risk Rating As on 31.03.11 Previous rating

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Risk rating

Rewards / Profitability Gross Interest Revenue projected last year Actual last year Revenue current year Actual Current year YTD _ _ _ _ projected 37.00 60.00 3.00 3.50 _ _ 40.00 63.5 36.00 3.00 Commission Other charges 1.5 40.5 Total

DEVIATIONS There is no deviation in the policy financial parameters. Actual as of Parameters Median Threshold B/s dated 31.03.10 Minimum EBITDA / Net Sales Minimum Interest Coverage Ratio (EBITDA / Interest & other finance charges) 1.75 1.50 2.39 Above median-Ok 0.03 0.02 0.39 Above median-Ok Remarks

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Minimum Current Ratio (Current Assets / Current Liabilities) Maximum Debt Equity (total Interest bearing debt / TNW) Maximum TOL/TNW Minimum DSCR (EBITDA / interest plus current maturities in long term debt) 1.40 1.25 2.05 2.00 3.00 2.31 1.15 1.00 3.12 Above median-Ok Above threshold Above median-Ok Above median-Ok

3.50

4.50

0.45

ASSESSMENT OF LIMITS

MPBF Method 1 Holding Levels Previous year Curren t Year Projns for year Actual Sales 98.88 1,657.1 3,000.00 9 Stocks Stock holding- days Receivables Receivables holding- days Other Assets Total Current Assets Creditors Creditors Current 97.34 193.24 5.65 holding- 65 40.71 713.15 11.37 3 72.50 1,117.50 25.00 4 1,117.50 25.00 4 72.50 3.86 44 92.04 354 154.08 40 518.36 114 275.00 40 770.00 94 275.00 40 770.00 94 3,000.00 next Taken for assessment

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days Other Liabilities Total Liabilities Current 14.69 18.49 37.00 37.00 Current 9.04 7.12 12.00 12.00

Reasoning for the above 2 Monthly Holding Levels based on stock statement (in days) Stock Debtors Creditor Sales s Average levels Last figures Estimated current year Projected ensuing year Accepted levels 40 94 4 3000.00 for 40 94 4 3000.00 for 40 114 3 1657.19 year end 44 354 65 98.88 Monthly

Linkages between the monthly averages and the year end figures 3 Working Capital Requirement Details Stocks Receivables Other current assets Total Current Assets (a) Less: Credit available on purchases Other current liabilities Total Current Liabilities excluding Bank Borrowings (b) Working Capital Gap (a-b)--(c) 4 Days 40 94 Rs.lakhs 275.00 770.00 72.50 1,117.50 25.00 12.00 37.00 1080.50

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25% on Current assets (d) Projected NWC (e) (C) - (d) (c) - (e) Maximum Permissible Bank Finance - Minimum of (f) or( g)

279.38 580.50 801.00 500.00 500.0

CONCLUSION & RECOMMENDATION The firm is doing well and has good relationship with IVBL. The past records of the firms account shows proper utilization of the availed facility. Thus, enhancement of limit is recommended.

Case 2: XYZ Chemicals

Control Information Application No. Borrower Name Banking arrangement Line of activity Trader Of Industrial Chemicals & Adhesives Constitution Limited Banking with IVBL since Sub-section for PSA Manufacturing Small Type of Exposure Renewal hoc Last approval on Limits valid till 31.07.2011 Others 31.08.2010 Mid review date (if any) No of Policy 1 Group Name NA IILM 73 None Review Enhancement Fresh Ad Service Enterprise Micro June-2009 Priority Sector No XYZ Chemicals Ltd. Sole Asset Classification Standard Application date 23/05/2011

deviations

Credit Risk Rating Particulars 1 2 3 4 5 6 7 Remark

(Financial Information per last audited accounts as on 31-Mar-10)

Industry/Business Status Clients History-Growth in

Industry well established and growing modest Acceptable track record for last nine years Less than 5% market share Borrower is very important to supplier Supply products to many customers Current ratio is 1.41 Leverage is 1.75 More than 20% PBDIT<5 DSCR is >2 Highly respected in market an experienced player well established family no adverse report Free assets available Good business sense and good business knowledge Strong commitment Son is already in business for a few years now Motivate employees Internal control exit but largely untested

Turnover & Profitability Competitive Position Suppliers Customers Liquidity Leverage [TOL/TNW] Sales Growth PBDIT/Sales DSCR Integrity

Family Standing/History Financial Standing Management Competence Management Commitment Succession

Employee Quality Internal Controls

Repayment Record Compliance Record

Occassionaly Delayed All critical

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conditions compiled

with Business Risk Score Financial Risk Score Management Risk Score Total CRR 3.2 3.4 2.9 62 3

Exposure to Borrower/ Group and CRR Existing Borrower Exposure 400.00 CRR 3

Group 400.00 3

Proposed Borrower Group 600.00 600.00 3 3

PURPOSE OF APPLICATION: Credit facilities recommended INR in lakhs

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Sl No

Nature of facility

Existing Limit

O/S on

as O/ D if any

Proposed limit

Terms- RoI, margin, tenor, usance period, commission details, etc)

(23/05/2 011)

By Br/ By RM RO

Existing

Proposed

1.

Cash Credit

350.00

273.77

500.00 ROI: IVBR + 4.25% (i.e.11.50 %p.a.) (Presently IVBR is at 8.9%) Margin: 25% on stocks and 40% on book debts upto 90 days

ROI: IVBR + 2.05% (i.e.11.50%p.a.) (Presently IVBR is at 9.45%) Margin: 25% on stocks and 40% on book debts upto 90 days

2.

FLC

50.00

150.00

Commissi on on: -1.2% p.a., Cash Margin: 20%, Tenor:180 days

Commission on:-1.2% p.a., Cash Margin: 20%, Tenor: 180 days

TOTAL

400.00

600.0 0*

*The FLC has to be released up to Rs.100.Lacs and the rest of Rs.50 Lacs is to be released such that the total limit remains Rs.600Lacs.

FINANCIAL ANALYSIS OF CLIENT

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Particulars

Immediate Previous Year Actual (2008)

Previous year Audited (2009)

Previous year Audited (2010)

Next Year Prov. (2011)

Next Year Projections (2012)

1) Sales 2) PBDIT 3) Interest 4) Depreciation 5) Taxes 6) PAT 7) Capital 8) Unsecured Loans

3,340.40 36.83 22.44 4.77 3.53 6.09 63.63 233.34

3,111.95 70.52 30.76 11.43 10.65 17.68 279.31 114.25

3,972.16 77.85 37.05 14.74 9.01 17.05 416.35 120.15

4,356.08 101.34 49.42 13.95 11.39 26.58 462.93 120.15

5,250.00 120.88 60.00 14.00 15.63 31.25 494.18 120.15

9) Loans from Other/Our Banks a) Term

1.90 59.42 14.46 165.33 8.38 262.19 5.45 267.30 2.73 500.00

Loans b) OD/CC

10) Current Liabilities 11) Non Current Liabilities 12) Fixed Assets 13) Current Assets a) Stocks b) Debtors c) Cash & Bank Bal. In current a/cs 14) Non CA 15) Current Ratio 17)TOL/TNW

616.75

834.09

934.13

692.40

1,101.54

0.00

9.64

5.45

2.73

0.00

17.33 891.82

58.66 1,060.86

45.34 1,317.29

38.42 1,147.36

38.37 1,617.00

236.89 627.46 11.09

430.75 533.39 58.87

391.39 876.90 14.17

351.68 743.40 20.03

475.00 1,080.00 23.00

4.58 1.45

118.47 1.27

113.45 1.41

92.30 1.66

59.90 1.47

13.36

3.43

2.55

1.76

2.47 IILM 77

(without USL) (with USL) 18) Inventory Turnover 19) Debtors Turnover 20) Creditors Turnover 21) NP margin 0.2 0.6 0.4 0.61 0.60 57 65 57 34 40 69 63 81 62 75 2.08 27 2.14 53 1.75 37 1.19 31 1.79 35

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Historical & future Turnover: Turnover of the company has shown good increase from FY06-08 it increased by 49%in 07 and 53% in 08 and fell by 6.8% in 09. The main reason that the turnover declined was that in 2007-08 the prices as compared to 09 were very volatile and such an environment one has to be very cautious in inventory level and thus sales tend to be on a lower side. But the company is continuously performing well as in the FY10 it has achieved the audited sales figure of Rs.3972.16/- lacs, which is an increase of approx 27.64% and in FY11 it is showing a projected sales of Rs.4356.08/- which is an increase of approx 9.67%.

In current year with good domestic demand the company expects to achieve a turnover of Rs.5250 lacs which is an increase of approx 20.52 %.

FY08 Sales Growth% 3,340.40 _

FY09 3,111.95 -6.839

FY10 3,972.16 27.64215

FY11 4,356.08 9.66527

Last 12 Months monthly sale details are as follows:Month April May June July August September October November December 2010-11 328.59 371.47 482.41 427.16 406.86 387.90 296.36 244.27 353.20
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January February March

266.40 374.05 417.42 4356.08

The comparison of provisional and audited financial for FY 2009-10 are: Particulars Provisional of FY-10 Sales PBDIT 3972.16 87.62 37.88 23.58 Audited of FY-10 3,972.16 77.85 37.05 17.05 No deviation is observed. Negative deviation due to the increase in general & administrative expenses and salaries No deviation observed, almost same Decreased due to the increase in general & administrative expenses and salaries Negative deviation of 8.95 due to the decrease in net profit. Decreased by 16.19 lakhs. Remarks

Interest PAT

Capital

425.30

416.35

Unsecured Loans Net Worth

136.34

120.15

561.64

536.50

Decreased due to the decrease in capital and USLs.

The comparison of projected and provisional financial for FY 2009-10 are:

Particulars

Projected of FY-11

Provisional of FY-11 4,356.08

Remarks

Sales

5473.00

Decreased due to increase in the foreign goods, which increased the cost of goods. Apart from this one of
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the major supplier also stopped producing the material required by the firm which further decreased the amount of raw material and thus sales. PBDIT Interest PAT Capital Unsecured Loans Net Worth 126.00 46.00 46.44 471.80 117.70 589.5 101.34 49.42 26.58 462.93 120.15 583.08 Decreased due to the decrease in sales Improved by 3.42 lakhs. Decreased due to the decrease in sales. Decreased due to the decrease in sales. Improved by 2.45 lakhs. No deviation observed, almost same

Profitability: The PBDIT margin has been increasing continuously except for FY10 due to increase in general expenses and interest. The net profit margins have also shown steady increase till now except FY10. The company is projecting an improvement in NP margin from 0.43 to 0.61 in FY11 compared to FY10. Leverage: TNW of the company comprises of share capital, reserve and surplus and unsecured loans. TOL of the company comprises of sundry creditors, working capital bank finance and short-term loan from banks and financial institutions. The TOL/TNW of the company is at comfortable level in all the years. TOL/TNW in FY07 to FY10 was at less than 3. In FY 11 the same had been projected 1.89 but as per provisional the ratio has improved to 1.19 because of regular infusion of either capital or USL in business in FY 11. Given is a tabular representation of capital and USL being maintained by the company over the period of time: 2007-08 2008-09 2009-2010 Capital Unsecured Loans TOL / TNW 63.63 233.34 2.08 279.31 114.25 2.14 416.35 120.15 1.75 2010-11 462.93 120.15 1.19
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Liquidity: Current assets of the company comprises of inventory, debtors and cash & bank balance. Current liabilities of the company comprises of sundry creditors and working capital bank finance and other short-term liabilities. The current ratio of the company is at comfortable level and is around 1.5 or below throughout it is 1.41 in FY 09. The ratio has further improved to the level of 1.56 in FY 09-10. The company maintains an average inventory of 60-90 days at all time. . Further, the company extends a credit of 90 days to its customers. The company purchases stocks on terms of 90 days credit.

RISK APPRAISAL
Business Risk and Future Outlook The business risk is mainly from competitors as there are lots of players in this segment. But the advantage the XYZ has is that is has a vast experience of almost three decade in this field and have the technical competency and good relationship with its customers. Further it enjoys a good reputation in market with proven track of providing desired quality and quantity. Management Risk Although the main promoter of the company still associated with the business is Mr.ABC but next generation has already stepped in to the business. And have at least 3 years of experience in the business. Performance Risk The company has requisite technical knowhow, acquired over a period of time, and has the required knowledge required to do chemical business, one of the key success ingredient in the industry. Structure Risk The customer shall be offered with recommended cash credit, FLC as it does not entail any structural risk Industry Sector Concentration There is no major exposure on the same sector in North India. Country Risk The company is dealing with customers in local market in north India and as such doesnt entail any country risk. Environmental Risk
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The company is into trading of chemicals used in manufacturing and as such does not have any environmental risk. Regulatory Risk The company complies with all significant statutory and regulatory requirements and no risk is associated with the same. ING Vysya Banks Reputation Risk There are no risks associated with the moral or ethical issues. No risk is envisaged with the lending. Specific Purpose of Asset Collateral We are taking one residential property at a prime location in Area X and one Industrial property used as godown in Area Y. All the properties are located at prime locations thus no risk is associated with the same. Financial Risk The customer has been into the same business for 29 years and has developed his clientele over years and has been getting repeated orders from the same customers. Further, the business has been increasing year on year and now the company has built a reputation amongst its customers. Transaction Risk Documentation risk: All documentation as advised shall be carried on and no documentation risk is envisaged. Covers/Collateral valuation Risk: empanelled valuer shall value the collateral and thus no risk is envisaged with regard to the same. Interest Rate Risk: The rate of interest is a floating rate linked with IVBR and thus shall be taken care of. Any Other Risk The business does not entail any other risks. SWOT Strength: The strength of company is Good knowledge and experience in the field. Established existing loyal customer base developed with relationship of several decades. The business is very well diversified and is not dependent on one segment.

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Weakness: - The entry barriers in business are very low and company has to be on its toes all the time. Opportunity: - Presently the company is in north India and can explore the possibilities in other parts of India which is a very huge market. Threat: - Major threat in the segment is competition as there are many players in the segment and the retention of customer is a tough ask. But keeping in mind the experience of the company and relationship it has with customer it has been able to retain its share and grow steadily. COVER / COLLATERALS AND COVENANTS Collaterals Land Present Proposed (valuation yet to be done) Building Machinery Others Total Cover % Rs.575.00 Lacs Rs.575.00 Lacs 143.75 % 88.46%

NW of Guarantors - Personal / Corporate guarantees: Promoters Other persons Present Rs.1427.84lakhs Nil Nil Corporate / Group concerns Rs.1427.84lakhs Rs.1427.84lakhs Proposed Rs.1427.84lakhs Total

RISK RATING/RISK-REWARD/PROFITABILITY Risk Rating As on 31.03.11 Risk rating 3 Previous rating 3

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Rewards / Profitability Gross Interest Revenue year Actuals last year Revenue projected current year Actual Current year YTD Other benefits including FTP from deposits TPP Products can be cross sold to the customer. 49.42 60 1.00 0.60 _ _ 50.42 60.60 projected last 46.00 1.00 Commission Other charges _ 47.00 Total

DEVIATIONS EBITDA/Net Sales is equal to the Thresh hold limit and thus fails. This is due to the increase in the operating expenses and hence acceptable. a. Deviations in Credit Policy Financial Parameters

Audited as of Parameters Median Threshold B/s dated 31.03.10 Minimum EBITDA / Net Sales Minimum Interest Coverage Ratio (EBITDA / Interest & other 1.88 finance charges) Minimum Current Ratio (Current Assets / Current Liabilities) 1.81 1.50 2.10 0.03 0.02 0.02

Remarks Dated 31/3/2010 Fails Above median- OK Above median- OK

1.00

1.41

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Maximum Debt Equity (total Interest bearing debt / TNW) Operating Cash Flow Minimum DSCR (EBITDA / interest plus current maturities in long term debt)

.52

2.00

0.50

Above median- OK Above median- OK Above median- OK

Positive for atleast 2 years in immediate past 3 yrs

1.75

1.25

1.85

1.86

The operating cash flow is negative mainly due to higher level of Debtors due to increased sales and also because of higher stock level. ASSESSMENT OF FACILITIES
WORKING CAPITAL ASSESSMENT MPBF Method 1 Holding Levels Previous year Actual Sales Stocks Stock holding- days Receivables Receivables holding- days Other Current Assets Total Current Assets Creditors Creditors holding- days Other Current Liabilities Total Current Liabilities Reasoning for the above 2 Monthly Holding Levels based on stock statement (in days) Stock Average Monthly levels Last year end figures 37 81 57 3972.16 Debtors Creditors Sales 3,972.16 391.39 37 876.90 81
49.00

Current Year

Projns for next year

Taken for assessment 5,250.00 475.00 35 1,080.00 75

87.00

4,356.08 351.68 31 743.40 62

52.28

5,250.00 475.00 35 1,080.00 75

87.00

1,317.29
598.54

1,147.36
391.82

1,617.00
550.18

1,617.00
550.18

57
70.47 669.01

34
33.28 425.10

40
51.36 601.54

40 51.36
601.54

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Estimated for current year Projected for ensuing year Accepted levels

31 35 35

62 75 75

34 40 40

4356.08 5250.00 5250.00

Linkages between the monthly averages and the year end figures

Working Capital Requirement Details Stocks Receivables Other current assets Total Current Assets (a) Less: Credit available on purchases Other current liabilities Total Current Liabilities excluding Bank Borrowings (b) Working Capital Gap (a-b)--(c) 25% on Current Assets (d) Projected NWC (e) (C) - (d) (c) - (e) Maximum Permissible Bank Finance - Minimum of (f) or( g) 40 Days 35 75 Rs.lakhs
475.00 1,080.00 62.00 1,617.00 550.18 51.35 601.54 1,015.46 404.25 515.46 611.21 500.00 500.00

FOREIGN LETTER OF CREDIT Based On Projections

Formula 1 2 3 4 5 Annual Purchase of Client Import Content % Total imports Average monthly import purchases Import duty element % (1) x (2) (3)/12 Amount-Rs. Lakhs
5019.00

31%
1,555.89

129.66 5% IILM 87

6 7 8 9 10 11 12 13 14 15 16 17 18

Duty amount/month Net import value/ month Imports on DA basis Import on DP basis Transit period for imports-mths Usance period for imports-mths Transit period for imports Total Lead time for DA-LC-mths Total Lead time for DP-LC-mths FLC requirement for DA-LC FLC requirement for DP-LC Total FLC requirement Proposed LC limits

(4) x (5) (4)-(6)

6.48 123.18

100% (6)-(7) 30 days 90 days (10)+(11) (9) (7)x(13) (9) x (14) (15)+(16) 120 days 369.54 Rs.369.54 lakhs Rs.150 Lakhs

CONCLUSION & RECOMMENDATION

The firm is doing good and have good relationship with IVBL from last one year with proper utilization of the facility. Thus, enhancement of limit is recommended.

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RESULT & DISCUSSION

This project helped me to understand credit management. My mentors provided me enough opportunities to get real time experiences of different stages of credit management. I worked in detail on monitoring and credit appraisal. I also learn what is drawing power, its significance and how to decide the drawing power of the clients. I worked extensively on Credit Appraisal and Monitoring. These two projects helped me to understand the significance of monitoring/follow-up and the procedure followed to do the same. Through credit appraisal I learned the procedure to make and credit appraisal memo and details about the documents required to do the same. This gave me the opportunity to know the guidelines set up by ING Vysya for making CAM. I got to know the verification methods for cross checking information that is given by the client. Through Financial Analysis under CAM, I have done the practical implementation of the financial knowledge given to me at my college, IILM INSTITUTE FOR HIGHER EDUCATION , GURGOAN. Monitoring project gave me the opportunity to experience the power of fast moving technology through the MIS system of ING Vysya. From MIS system authorized persons can access and feed information related to clients account. A change made in one branch can be seen at any other bank. This helps the bank to save time and provide fast services to the clients. I also got the opportunity to do a unit visit with Mr. Sumit Khari at the factory of new client. This visit was made before preparing credit appraisal memo for the client. This visit helped me to understand the importance of unit visits, what all things has to enquired to check the authenticity of the information given by client and what all documents are required for credit appraisal.

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SUMMARY
SME sector is one of the fastest growing sector in India and one of leading contributor to countrys total export. It has been seen as a driving factor and an important element in achieving the targets of the Indian economy. Because of the low capital requirement and its exponentially growing speed, SME sector is continuously provided with various schemes and facilities from the banks.

ING has a separate branch for the promotion of SMEs and offers various schemes to them to achieve their targets. At ING facilities given to SMEs are as per Code of Banks commitment to Micro and Small Enterprises with the objective of encouraging this sector through easy availability of facilities. Bank takes care of complaints of the client by promptly responding to it. The personal and business information of the client is treated as private and confidential, and is guided by principles and policies stated in the code. The method followed at ING for lending to SMEs is as per the norms set up by RBI and the above mentioned Code.

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REFERENCES

About ING, official website of ING Vysya Bank. About Small and Medium enterprises, official website of Ministry of Micro, Small and Medium Enterprises.

Credit Appraisal Method is referred from the documents of ING Vysya, Punjabi Bagh Branch, New Delhi.

Definition about Fund Based and Non Fund based are taken from: Code of Banks Commitment to Small and Medium Enterprises and website: www.investopedia.com

Code of Banks Commitment to Small and Medium Enterprises, official website of ING Vysya Bank: http://msme.gov.in

Document on Lending to SME Sector, official website of Reserve Bank of India.

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